Shadow AI: What is it, and what does it mean for your business?

Artificial intelligence (AI) has become a very powerful tool for businesses for all sizes by simplifying admin tasks, boosting customer service, analysing data and much more. AI offers huge opportunities to help a business to grow, but as with many new technologies, it also introduces new risks, particularly when it comes to something that many businesses may not have heard of: “Shadow AI”.

The South West Cyber Resilience Centre works with businesses across the region, helping them to understand emerging cyber risks and how to combat them. Shadow AI is one of the latest challenges we want local businesses to be aware of.

What is Shadow AI?

Shadow AI refers to employees using AI tools without the knowledge or approval of their organisation’s IT or security teams. Much like “shadow IT” (when staff use unapproved apps or devices for work), shadow AI often happens with the best of intentions.

An example of this may be an employee copying sensitive information into an AI chatbot to help them draft a report, or a marketing team using an AI tool to generate images without checking its licensing terms. On the surface, this may appear like increased productivity, but beneath it lies a potential cyber risk to your business.

Why is Shadow AI a risk to businesses?

Businesses across the South West are increasingly adopting digital strategies to stay competitive in their industries, but not every organisation has their own dedicated IT or cyber security department. This makes smaller businesses particularly vulnerable to the hidden risks of Shadow AI. Some of the key concerns associated with Shadow AI are:

·       Data exposure: Sensitive information such as customer details, financial data, and intellectual property could be shared through the use of an AI tool, meaning it could be stored or reused in ways that the business can’t control.

·       Compliance issues: Many sectors in the South West, such as healthcare, education, and financial services, handle regulated data on a daily basis. Unauthorised use of AI could put organisations at risk of breaching GDPR or other regulations specific to their industry.

·       Reputation damage: If a small business suffers a data breach as a result of Shadow AI, the trust built up with customers and partners could be badly damaged.

• Hidden costs: Some AI tools may introduce unexpected fees, licensing issues, or integration problems if used outside official processes.

What can businesses do about Shadow AI?

The good news is that tackling Shadow AI doesn’t mean banning the use of AI altogether in the workplace. Instead, creating a safe and practical environment for employees to use AI responsibly is the best way forward. For businesses in the South West, here are some steps that we recommend you take to keep your staff and operations protected:

·       Have a conversation: Encourage clean communication and open discussions about the use of AI in the workplace. Employees often turn to Shadow AI because they are not sure of what’s allowed or because they feel approved tools aren’t meeting their needs.

·       Create clear policies: Make sure your staff know which tools are approved, what data can and can’t be shared, and how to raise any questions or concerns that they may have regarding the use of AI.

·       Provide staff training: Regular security awareness training for staff can help them understand both the benefits and the risks of AI. These sessions are also designed to give staff the knowledge and confidence to recognise and report other common cyber threats.

AI isn’t going away. In fact, the use of AI will only continue to grow and businesses that use it safely could see huge benefits. As with using any new technology, the key is balance and making the most of the opportunities the technology brings while protecting against the risks. We’re here to help businesses across the South West understand shadow AI today in order to better prepare themselves for the threats this growing trend may bring to the organisation tomorrow.

If you have any concerns about the use of Shadow AI in your business, then you can contact us today. If you’re not a member, join us for free to receive expert guidance and advice and funded services delivered by cyber professionals at Cyber PATH.

In addition, our CTFO, Joseph Ross, and Executive Assistant, Emma Moss, recently co-authored an academic paper with Lee Hibbert of the University of Gloucestershire on the topic of Shadow AI and how organisations can protect themselves from the risks associated with it. To read the paper in full, click here.